Credit Card for the Unemployed

Options like secured credit cards, business credit cards, student credit cards, and credit cards with low limits may be options if you are unemployed. Unemployment is not uncommon and can happen to anyone. In the third quarter of 2023, the national unemployment rate was 3.7%.1

Credit cards are a form of revolving credit that can be extremely helpful during an emergency. They can also be used just like another loan would, applied for when the expense comes up. If you don’t already have a credit card you can use but are unemployed, you may be curious about what options are available to you and where to begin your search for credit card companies. Continue reading to learn more about getting an unsecured or secured card while unemployed. 

What Kinds of Credit Cards Can I Expect if I Am Unemployed?

There are a few types of credit cards you may be eligible for if you are unemployed in a traditional sense—in between jobs and have no job or occupation at the moment. Here are some options that may be able to help you: 

Type of Credit CardDescription
Secured Card for Unemployed IndividualsSecured credit cards require a deposit to establish credit.
Small Credit Limit with Credit Card IssuersDue to the lack of a standard job and income, credit limits may be low. Suitable for small expenses but may not be sufficient for significant purchases or expenses.
Business Credit Cards for the Self-EmployedIf you own a business and have income, you can apply for a standard business credit card. Suitable for self-employed individuals with a steady income stream.
Student Credit CardsStudent card issuers may provide funding for students without traditional income or credit history. 

Below is more information on each option

A Secured Credit Card for Unemployed Individuals

Secured credit cards will allow you to borrow from them as long as you have some sort of deposit in them. There are some lenders that may make credit available right away, while with others, you may establish a payment history by depositing and borrowing from your own funds. And so, if you need funds right away, it may not be the best option for you. 

A Small Credit Limit with Credit Card Issuers

Without a standard job and income, your credit limit may not be high. Chances are you will get a small amount of credit, which can definitely help for a small expense but won’t work if you have a large purchase or expense. 

Business Credit Cards for the Self-Employed

Most business owners are self-employed, and technically, that may be seen as unemployed. The good news is that if you own your own business and have some income stream, you will be able to apply for a standard credit card. Depending on how your business is set up, you may not even need to discuss your personal finances. 

Student Credit Cards

Student credit card issuers can offer funding for student borrowers who don’t have traditional income or any credit history.  You may need a cosigner for this option. 

Why May It Be Challenging to Get Credit When Unemployed?

To better understand why it can be challenging, it will be helpful to understand some of the basic requirements that credit card lenders will look at for approval (and these factors will impact your credit card interest rate and limit). Here are some variables to keep in mind:

Your Credit Score and Credit History

Your credit score is an essential part of almost every financial service or product you will apply for. Your credit score gives a lender a good idea of the different things you may have in your credit history. Your credit history will appear on your credit report and will be pulled when you apply for a credit card. 

Things like on-time payments and a diverse credit portfolio will be positive for your credit, while things like loan default and bankruptcies will have a negative impact. The better your credit score and credit in general, the higher your credit card limit will be, the more options you will have, and the better interest rates you will get. 

Your Income

Your income will be another important factor that credit card companies will look at for approval and credit limit. You don’t need to have a traditional full-time job to qualify for a credit card. Many credit card issuers will accept all kinds of income for approval (more information on that later). 

Solutions for Getting a Credit Card While Unemployed?

And so as you can see, income is a pretty significant factor for credit card approval. If you are unemployed and are receiving unemployment benefits (which may not be a lot), there are some things you may be able to do to increase your chances of getting approved for a credit card: 

Apply for a Secured Credit Card Rather Than an Unsecured Credit Card Option

A secured credit card will require a refundable security deposit to guarantee the credit card issuer will receive funding. In comparison, unsecured credit cards don’t require any security. Secured credit cards are easier to get approved for, so if you are unemployed, start with them. 

Add a Cosigner or Co-borrower to the Credit Card Account 

When applying for a credit card with limited income, consider adding a cosigner or co-borrower to your credit card application. A cosigner or co-borrower with sufficient income and a good credit score with all three credit bureaus can really increase your chances of approval. 

Take Steps to Improve Your Credit Scores

Income is a large part of credit approval, but it isn’t the only factor; your credit score matters quite a bit, too. And so, with limited income, it will be helpful to have your credit as good as possible. 

And so, if you have some time before applying, do things like pay your bills like rent or mortgage payments, utility bills, student loans, and other loan obligations on time (which will also help your debt-to-income ratio). Or become an authorized user on someone else’s credit card. These are just a few strategies to improve your credit; there are several other ways to improve your credit scores quickly. 

Make Sure You Include All Your Sources of Household Income in Your Credit Card Application

The last thing you can do to improve your chances of getting approval while unemployed is to ensure that you are showing all your income sources. Whether you have passive income or are simply only on unemployment benefits, don’t forget to include them in your loan application. 

What Kinds of Income Are Acceptable for Most Credit Cards?

Just because you are unemployed doesn’t mean that you don’t have income! Here are some alternative types of income sources that a credit card company may accept:

Social Security Payments

Social security benefits/payments can definitely be used as a valid source of income with many financial institutions. 

Disability Income

Disability income is something you may not think about as income when applying for credit cards or any other type of financial product. However, you can use disability benefits as a valid source of income. 

Passive Income Sources

Passive income is any type of income that you don’t have to actively work to earn. A few examples include real estate and investments. Depending on how often you get paid or how much, passive income can be enough for credit card approval. 

Unemployment Benefits

If you are unemployed, you may receive unemployment payments from your state. How much these benefits are and how long you will get them will depend on the job you had previously. It should be close to that income amount. You should be able to use these benefits as a source of income for credit card applications. 

Awards and Gifts

You can also use awards and gift income as an income requirement for credit cards. Just make sure that you have documentation that can prove this. 

Contract and Freelance Income

Contractors and freelancers get paid based on specific work for a project or sometimes ongoing needs for a company/business. If you are a contractor or freelancer, your income can be used to get approval for a credit card. Keep in mind that constituent income will look better than sporadic income sources. 

Part-time Income

Many people don’t work a traditional job and may have a part-time gig or a few. If you work part-time, definitely include that income source when applying for credit cards. 

Other Borrowing Options When Unemployed

Credit card debt may not be the best option for you, and sometimes, it is more challenging to get approved for when compared to other loan options. The good news is that there are other options you can look into; here are some alternatives to credit cards. 

Personal Loans

Personal loans are types of installment loans and are some of the most versatile options out there. Whether you have limited income or bad credit, you may be able to find an online personal loan that can help you get funded. There are also secured loans you can look into. 

Borrowing From a Friend or Family Member

Another option you can consider if you are in between jobs, is to ask friends and family for some financial support. Although this can be a little bit awkward, it can definitely be the most flexible and affordable option available. And once you get back on your feet, you can pay them back!

Using Assistance Programs for Help

If you are unemployed, you may naturally turn to unemployment assistance to make ends meet. However, those are not the only benefits you may be eligible for, especially if you have dependents who rely on you for their primary care. Food assistance, housing benefits, help with utilities, etc., are all available from state and federal government agencies. There may also be several local organizations that can help you out in your time of need. 

The Importance of Building a Savings Fund for Emergencies

Once you get back on your feet, it will be a good idea to have an emergency fund in case another unexpected situation arises. If you haven’t built a savings fund before, you can simply start by putting away a small amount of money each time you get paid. Or you can look into more in-depth saving strategies. 

FAQS

Can becoming an authorized user on someone else’s credit card help improve my credit score?

Absolutely! Being an authorized user on another person’s credit card can be a smart way to build or improve your credit score. The key is to ensure that the primary cardholder has a good credit history. Just remember both parties’ credit scores can be affected by each other’s actions.

What is a refundable security deposit on a secured credit card, and how does it work?

A refundable security deposit on a secured credit card acts like a safety net for the issuer. You pay a certain amount upfront, which typically becomes your credit limit. This deposit is fully refundable if you close the account in good standing or transition to an unsecured card.

How do secured credit card issuers report to credit bureaus, and how does this affect my credit?

Issuers may or may not report to all three major credit bureaus – Equifax, Experian, and TransUnion, but likely at least one, if not all three.. Just like with regular credit cards, timely payments and responsible usage can positively impact your credit score. It’s a great tool to rebuild or establish credit.

If I have bad credit, is it still possible to get approved for a credit card?

Yes, it’s possible! There are credit cards specifically designed for people with bad credit. These often include secured credit cards, which require a refundable security deposit. They can be a stepping stone to improve your credit score and qualify for better credit options in the future.

What should I consider before adding someone as an authorized user on my credit card?

Before adding an authorized user, think about their financial responsibility and trustworthiness. Remember, any charges they make will be your responsibility. It’s a big decision, as their actions can directly impact your credit score.

Can a secured credit card eventually lead to an unsecured credit card?

Definitely! Many people use secured cards as a pathway to unsecured cards. By consistently making on-time payments and showing responsible credit behavior, you can improve your credit score and eventually qualify for an unsecured card.

How do I choose the right credit card if I’m working on improving my bad credit?

Look for a card that reports to the major credit bureaus, has a reasonable fee structure, and offers the possibility of transitioning to an unsecured card. Also, consider cards that offer educational resources to help you understand and improve your credit.

The Bottom Line With CreditNinja

If you are unemployed and need a credit card, there may be options available. In addition to considering those, there are alternatives to credit cards that can help you get the funding you need while you are unemployed. Once you are back on your feet, it is extremely important to start or build up your savings fund. CreditNinja is here to help you learn more about getting by when unemployed, savings, or almost any other financial topic—check out our free blogs on our website. 

References:

  1. Economic Policy Institute | Unemployment Rate

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